🤷‍♂️ Fitch prognosis – negative, GST shortfall & Gold Funds.

Orowealth Weekend Reads: June 21, 2020

LAST WEEK MARKET MOVES

HEALTH INSURANCE

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NEWS WE HAVE BEEN FOLLOWING

#GSTShortfall
The central government has recently released Rs 36,500 crore from the integrated GST pool. But even after that large sum, state governments will need to be paid Rs 80,000 crore additionally to compensate them for the State Goods and Service Tax (S-GST) shortfall in the March-May period. This is based on the calculation of 14% assured annual revenue growth. The nationwide lockdown to control the spread of Covid-19 resulted in a nosedive in GST revenue in April and May. This shortfall, coupled with Rs 13,000 crore unpaid S-GST compensation adds up to nearly Rs 80,000 crore. While the S-GST shortfall in FY18 (last nine months) was Rs 4,571 crore and stood at Rs 5,773 crore in FY19, it had surged to Rs 12,583 crore on a monthly average basis in FY20. But these figures pale in comparison to the shortfall for the current fiscal. Given that tax revenues may not pick up for most of the financial year, this gap is expected to widen. GST compliance has further weakened because the system is not adequately equipped to address all issues. In such a case, this protected revenue to state governments seems unreasonable.

Takeaway-
If state governments understand that the Centre will not be able to ensure protected revenue from the GST pool or are able to find additional sources to plug the revenue deficit, it would vastly help the situation.

#FitchRating
Fitch Ratings retained India’s sovereign credit rating ‘BBB-‘ but revised its outlook downward to negative. The outlook downgrade from stable was on its view that the risk to India’s growth and the fiscal situation has risen. All three major rating agencies – S&P, Fitch, and Moody’s – now have India’s rating on the lowest investment grade level. But while Fitch and Moody’s have a negative outlook, S&P has a stable outlook. Fitch’s negative view on India’s debt may be surprising to the government as just earlier this month, a report from the rating major had expected the government’s debt to GDP ratio to decline in the medium term. Among economic projections, Fitch sees the Indian economy contract by 5% in FY21 and then rebound by 9.5% in FY22 because of a low-base effect. As far as government finances are concerned, the firm expects government debt to surge to 84.5% of GDP in FY21 from an estimated 71% in FY20. On a slightly positive note, the agency said that if India’s structural reforms are successful, its fiscal condition might improve.

Takeaway-
The rating action expresses Fitch’s concerns regarding India’s high debt burden.

FROM OUR BLOG SECTION

Everything You Need To Know About Gold Funds

Gold Funds are a type of Exchange Traded Funds or Mutual Funds. Such funds allow investors to invest in companies that are producing gold or in various gold bullion. The goal of such funds is to obtain high returns from investing in Gold in a simpler way.

QUOTE OF THE WEEK
“The optimist sees the rose and not its thorns – the pessimist stares at the thorns, oblivious of the rose.” – Kahlil Gibran (a Lebanese-American writer)
Chosen by Manish – Orowealth.